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Analysis and Prediction:

Date of publication: October 22, 2018 | Author: Tim Clayton

Last Week’s Summary

Currencies transfer around the world for weekly review

International relations watched closely

US-Saudi Arabian tensions were tense following further allegations that the Saudi writer and US resident Khashoggi, was killed at the Saudi embassy in Turkey. The Saudi regime’s statements reinforced confusion amid uncertainty over President Trump’s response.

President Trump also stated that the US would pull out of the long-standing US-Russia nuclear treaty.

Global equity markets still fragile

US equity markets rallied strongly in mid-week, but were unable to sustain the gains and ended close to weekly lows which maintained fragile risk conditions and provided support for defensive currencies.


The US retail sales and housing data was below consensus expectations while business surveys remained generally strong and there was little overall impact on sentiment surrounding the US economic outlook.

Minutes from the September Federal Reserve policy meeting recorded strong underlying support for further gradual increases in interest rates. The hawkish rhetoric reinforced expectations of further hikes and there was speculation that rates would need to increase more than expected in 2019. The tough rhetoric triggered further dollar buying against major currencies as overall yield spreads continued to underpin the US currency.


UK economic data was mixed with the strongest rate of headline wages growth for over 9 years offset by a decline in the CPI inflation rate to 2.4% from 2.7%.

The monthly retail sales data was also below consensus forecast while Bank of England officials maintained a generally cautious tone.

Political developments had a crucial impact during the week amid the EU Summit. Expectations for a Brexit deal had also been dashed ahead of the meeting and expectations ahead of the meeting were therefore low.

There was no breakthrough in talks while the potential for an extension of the transition period after EU withdrawal was floated as a way to help break the deadlock.

These reports triggered serious tensions within the Conservative Party and further undermined Prime Minister May’s position.


There was weaker than expected German ZEW investor confidence data while ECB President Draghi warned over threats to central bank independence.

Developments surrounding Italian fiscal policy had the largest impact during the week and were correlated strongly with Euro moves. Sustained criticism of the Italian budget plans by EU officials undermined domestic bonds as the gap between Italian and German yields widened to fresh 5-year highs.  

A more conciliatory tone from EU Commissioner Moskovici on Friday and reports that the Italian government could adjust targets triggered a sharp rally in bonds and the Euro recovered ground.

Moody’s downgraded the Italian credit rating, although the outlook was revised to stable from negative.


Canadian inflation data was weaker than expected with the headline year-on-year rate declining to 2.2% from 2.7% and the core rate also edged lower. Weaker than expected retail sales data and lower oil prices also undermined the Canadian currency as it declined to 6-week lows against the US dollar.

The Australian government lost its majority after being defeated in a by-election.

Next Week’s Forecast & Events

Stock Exchange Market Weekly Forecast

Geo-political developments in focus

The US stance on international relations will be an important focus during the week. US-China tensions will remain important and developments surrounding Saudi Arabia and Russia will also be potentially important for sentiment. The impact on global oil prices will be monitored closely.

Domestic political tensions will also increase ahead of the November 6th mid-term elections.

Equity markets will be important

Developments surrounding global equity markets will be important given the risk of further volatility, especially with markets concerns surrounding the risk of market losses during the month of October. The yen and US Treasuries will gain support if markets decline sharply again while sustained rallies would limit yen support.


The advance release of third-quarter GDP data is due on Friday with durable goods orders data on Thursday. The growth data will have a short-term dollar impact, but the policy impact is likely to be very limited.

PMI data could be important in assessing underlying trends, although the market reaction is usually limited.

Comments from Federal Reserve officials will be monitored closely, although the impact will be limited unless there is evidence of a shift in official rhetoric.

Political developments will be monitored closely as tensions start to increase ahead of the November mid-term elections.


The minor data releases due for release are unlikely to have a significant impact with political developments liable to dominate.

In particular, markets will be focussing on whether the government can make headway in Brexit talks and whether Prime Minister May makes any progress in securing parliamentary backing for any deal.  

If May fails to ease tensions within the Conservative Party, speculation over a leadership challenge and failure to secure a Brexit deal will intensify.  

Political jitters will continue to unsettle Sterling unless there is clear evidence of momentum towards a deal that can secure UK parliamentary approval.


The ECB will hold its latest policy meeting with no change in interest rates expected. There are, however, likely to be important discussions on technical aspects of policies and the potential for updated forward guidance.

The latest Euro-zone PMI data is due for release on Wednesday with the German IFO business confidence survey on Thursday. Evidence on business confidence will be important for underlying sentiment surrounding the economy and Euro.

Political developments will be important with markets monitoring Italian budget developments closely while Brexit developments will also have an impact on sentiment. The Italian government still expects the budget to be rejected by the EU.

The Euro will gain ground if tensions surrounding the Italian budget and Brexit ease during the week.


The Bank of Canada will announce its latest monetary policy decision on Wednesday with consensus forecasts for a further 0.25% increase in rate to 1.75%. The bank will release its latest monetary policy report and Governor Poloz will hold a press conference.

Currency Forecast for Next Week

Currency pairSpot 1-week forecast1-month forecast


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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